Part I contained an introduction to the project cycle, and illustrations
of the processes of project formulation and implementation. Part II
now describes in greater detail the stages within project formulation, that
is identification, preparation and appraisal.

It is important to point out at the outset that production-oriented
aquaculture development projects differ substantially from those typical of
production in agriculture.

Agriculture production projects are often concerned with large-scale
development over wide areas of land for which there may be options for
different crops, such as sorghum, corn, maize, tobacco, vegetables, etc.
Even production projects which perhaps only deal with one type of farming
system, such as animal or poultry husbandry, are often not restricted to
any one place.

Aquaculture production projects in general are more constrained
physically by their need for existing waterbodies, or water resources
adjacent to suitable land. Consequently these basic requirements
immediately limit options for:

the species which can be farmed (into those which tolerate fresh-water,
brackishwater, or marine environments);

the systems which can used (as extensive, semi-intensive, and
intensive systems all depend on the availability of resources and
inputs); and

the practices which can be used (as all farm units, such as ponds,
raceways, floating cages, rafts, etc., each have characteristics
which make them particularly applicable in certain conditions).

These physical constraints influence the types of projects which can
be formulated. Notably, projects with activities which extend over large
areas are, for the most part, not characteristic of aquaculture development;
projects are typically relatively small, and highly specific in
terms of their objectives.

While the emphasis in this document is on public sector funded
projects, it is recognized that in aquaculture, as in agriculture, most
investment is made by the private sector, with little or no direct intervention
by government. Such investment decisions can be taken within the
broad framework of project formulation described here, but the process will
differ in the level of attention given to each stage.

As a consequence of the constraints and the limitations noted above,
aquaculture projects, by and large, fall into four categories or models,
i.e.:

MODEL A: Private sector projects where investment is by a
commercial interest. For example, an entrepreneur wants to
build a trout farm on his own land; or a shrimp farming
company wants to build a new hatchery; or an international
corporation wants to convert its low-grade sugarcane
plantations into catfish production.

MODEL B: Public sector projects where the investment is in
a publicity owned entity. For example, the Ministry of
Fisheries wants to build a state hatchery to support its
programme to enhance inland fisheries; or the national
extension service requires a new farm to demonstrate fresh-water
shrimp production; or the Ministry of Technology
wishes to build a national research and development centre;
or a parastatal organization wants to build a new fish
market.

MODEL C: Public sector projects where investment is by
private farmers supported by government services. For
example, the Ministry of Agriculture wants to increase
inland fisheries production; or the Department of
Aquaculture wishes to increase national production of
molluscs; or the Ministry of Planning and Development seeks
to increase national foreign exchange earnings through
marine shrimp production.

MODEL D: Public sector projects concerned only with institution
building. For example, the Ministry of Agriculture
needs to be strengthened to improve its organization and
management of the aquaculture sub-sector; or a parastatal
body needs training in market research and product promotion;
or certain universities want to upgrade their graduate
and post-graduate education programmes in aquaculture.

Project identification is the first stage of formulation. It has two
phases (I and II). The first concerns the preparation required for project
formulation, and the second concerns reconnaissance and preliminary project
design.

The purpose of Phase I is to prepare for well-organized project formulation,
or, more precisely, to complete all necessary arrangements (administrative,
logistical, and financial) to ensure that project formulation makes
efficient use of the time and resources it requires.

Four main outputs of this phase are expected:

The project concept or idea is outlined, with basic objectives,
possible activities, and boundaries. The original concept is
formalized and described in a written statement on the basis of
available information. The preliminary project framework is
constructed (public sector projects).

Terms of reference (TOR) for the exercise are prepared. They
determine the broad scope of work to be carried out. They are
used, subsequently, as a yardstick to measure effectiveness of the
formulation team.

The work plan for carrying out formulation activities is prepared
as far as possible. This requires participation of the team leader
and involvement of all team members to ensure that each professional
requirement for the work is taken into account.

Specific individuals required in the formulation team, representing
the different disciplines required, are identified and recruited.
Funds are released to provide operational expenses, and office
space, transportation arrangements, resources for communication,
and any other logistical support, are all reserved.

The work in the Phase I typically has two steps, namely project
inception (called Step 1), and preparation of formulation work plan (Step
2). Activities of both these steps are illustrated in Figure 4, and
described in detail in the following text.

For projects financed wholly or partially through official external
assistance, a logical framework is often required at this point. This is a
planning and management tool which is complementary to the conventional
project formulation procedures which are the subject of this document.
Table 1 shows a logical framework, written at the project idea stage, of a
project for a municipally owned fish farm in China.

Figure 4 Phase I. Preparation for project formulation

For projects financed wholly or partially through official external
assistance, a logical framework is often required at this point. This is a
planning and management tool which is complementary to the conventional
project formulation procedures which are the subject of this document.
Table 1 shows a logical framework, written at the project idea stage, of a
project for a municipally owned fish farm in China.

The logical framework is a guide to helping those concerned to “think
through” the project by taking them through a number of logical steps.
Thus, at the first possible point in the formulation process, those responsible
for the project are required, after defining sector objectives, to
develop the first draft of the framework. This requires the project
planners to:

Table 1
A logical framework at project inception stage, of a proposed project for a municipality, fish farm in China

Narrative summary

Objectively variable indicators

Means of verification

Important assumptions/risks

Sector Objectives/Targets

Increase freshwater fish production by X tons, for the domestic market

1) Quality of materials and construction are acceptable construction, laboratory

2) Farm is constructed and commissioned

(a) Implementation completion report

2) Capital costs are within estimate

3) Fish sales

(b) Report by the ve- rification group Sales records

3) Management, technicians and labour of required expertise available

Financially profitable

Profit

Accounting records

Revenues greater than costs (capital and operating)

Narrative summary

Objectively variable indicators

Means of verification

Important assumptions/risks

Outputs

Sales of fish

Quantity sold

Sales records

1) Demand exists compatible with production

Provide on-the-job training for technicians and managers

Number of people trained and moved to new projects

Personnel records at the farm

2) Supply is consistent with esti-for mates of yield and mortality

(a) There are managers & technicians available to pro- vide the required training

(b) Suitably qualified people are available for on-the- job training

Job creation

Number and type of jobs

Personnel records at the farm

(a) Managers, technicians and labour of required skills are available

Financial surplus

Profit

Accounts

(b) Successful operation of farming

Inputs

Land

Government will assign land

Land use certificate

Not suitable for other use

Water

Government will issue water ease/use permits

Water use certificate

Quantity and quality adequate

Access roads Power and services Pond and canal construction

Completion

Acceptance report

Release of funds and work completion are scheduled

Pumps/Buildings/Vehicles

Raw material for fish feed

Delivery checks

Invoices/receipts

Materials are available

Trained personnel

Present

Personnel records

Available

Working capital

Bank transfer

Accounts

Available

set indicators or criteria related to project and sector objectives;

set means of verification of the project objectives;

state the major assumptions and risks affecting the project.

At this point in the formulation process, the information available is
likely to be at a general level, as shown in Table 1. Nevertheless, those
responsible for developing project ideas, or securing funding to take them
through formulation, will find the framework useful. As more information
becomes available in project identification and design, more detail can be
written into the logical framework.

The framework approach is most useful in projects which have a specific
and quantifiable output, for example production projects. It is not
so convenient to use for wide ranging projects, or where it is difficult
to verify objectives, for example in research, training and institutional
strengthening projects where the means of verification are primarily
qualitative.

With some donor agencies the decision to proceed to project
formulation is made on the basis of the logical framework.

Although procedures vary between countries, agencies, and also between
the public and private sectors, it is good practice for the project sponsor
(a donor agency or investor in the private sector) to draft preliminary
TOR. These will be finalized subsequently, preferably by the formulation
team in conjunction with the sponsor.

The starting point of the project formulation process is the project
idea. The idea may have originated from any of a number of sources,
including a previous project, sector studies, and requests from interested
parties. It may be brief and broad in scope, or quite precise, and it may
already be linked to a particular governmental department, or a funding
source.

When the project sponsor has decided that a project should, if possible,
be formulated, it is desirable that a brief project description
should be prepared, and preliminary TOR written. It is important, when
doing so, to maintain the right balance between, on the one hand, the need
to keep the project concept flexible (so that any potentially significant
area, sector, institutions, or target group are not excluded apriori) and,
on the other, the need to keep investigations within constraints of time
and resource limitations. For this reason donor agencies usually appoint
an experienced staff member to undertake this task.

It is useful when drawing up TOR to set out preliminary options
concerning geographical boundaries, institutions which will be involved,
and target groups. Based on these options, the preliminary TOR should take
into account the following:

the nature of perceived development problems and priorities attached
to their solution;

broad project objectives and how they fit the overall development
strategy (of the region, country, institution, or company);

decisions already made on main project components, and information
on components for consideration by the formulation team; and

decisions already made regarding specific areas, sub-sectors,
institutions, and target groups to be involved, or information for
the team to consider.

Step 1b - Recruitment and mobilization of the formulation team

The composition of the team, in terms of professional disciplines and
technical or vocational experiences respective for the work required,
mainly depends on the nature of the project as described in the provisional
project description and preliminary TOR. It is advisable to keep the team
fairly small (probably a maximum of five persons, including team leader).
The individuals within the team, therefore, must cover collectively a broad
range of professional disciplines and expertise.

In aquaculture, because it is a new field, it is not always easy to
bring together individuals who have the necessary broad experience and can
direct their work immediately to the key issues of the proposed project,
and it may be difficult to find the specialists who are also required. For
example, for a project which has a component of commercial production, it
is important at the out set to include one or more individuals who have
worked in the commercial side of the sector for a living (such as a farmer
or processor), rather than those whose production experience is only
information gained as a by-product of technology research and development.
Similarly hatchery engineers, who may be experts with certain types of
systems for temperate species, are often not familiar with technology for
tropical species, but their knowledge can assist in the transfer of
technology.

The nomination of team leader is critical. The team leader should be
experienced in at least one of the expected project components, well-qualified
to command the respect of all team members, and capable of
assembling and writing the project report.

Step 1c - Review of assignment (formulation team)

Using the provisional project description and preliminary TOR as a
starting point, the assembled formulation team members should make
themselves familiar with the assignment prior to commencing work in the
field. This would include:

familiarizing themselves with all project criteria;

assembling existing data and documents relevant to the project;

consulting key representatives of the sponsoring organization,
government bodies, organizations, and individuals who possess
information or knowledge relevant to the project, or who can express
points of interest, or policies;

identifying from this information essential development issues and
problems which should be given priority during the field work in
Phase II.

The attention given to this Step varies considerably. It is not
uncommon for teams to go into the field immediately after mobilizing, with
little or no briefing beforehand or, indeed, to mobilize in the field.
This may be because project sponsors which are development organizations
may have considerable “institutional memory” immediately available to draw
upon and, very often, the team leader will have recent experience of the
area to which the team is going. Even when this is not the case, the Step
does not require time consuming schedules for data or preparation of new
material; simply, what is necessary is the assembly of existing knowledge
and its use to identify the major issues. Going through this process will
make project identification easier and more effective.

It is important, however, that the team knows all criteria which the
project sponsor has set out for the proposed project. These criteria fall
broadly into two types, those dealing with objectives, and those with
constraints.

Constraint criteria concern predeterminants, such as ceilings on total
project cost, costs per beneficiary, maximum technical assistance cost, the
location of the project, the selection of cultured species, etc.

Step 1d - Terms of reference

These are TOR for the formulation team as a whole. The preliminary
TOR (Step 1a) are now redrafted, having regard to the analysis of the
existing information carried out in Step 1c, so that they are a useful
guide to the team.

Writing good TOR is not a brief and simple task. In many cases poor
project formulation can be traced to carelessly drafted TOR. They should
not be too brief and vague, thus leaving the formulation team with a potentially
large and endless task. Alternatively, they should not be too detailed
and specific, leaving the formulation team little room to manoeuvre
or to contribute imagination and creativity to the task.

Good TOR for a project formulation team should:

provide a concise background to the assignment (the origin or
rationale behind the project idea),;

state clearly what is expected to result from the work of the
formulation team;

specify important or general national or sectoral policies with
which the proposals of the team should comply or be consistent;

indicate major project selection and design constraints which should
be observed (such as maximum project cost, or target farm incomes);

suggest types of activities which may be included in the project,
and which institutions could be involved; and

set a precise date for conclusion of the formulation exercise.

TOR should be restricted to no more than a few pages typed in normal
format. They should express a manageable task, the achievement of which is
realistic within the permitted time frame.

From this point the team is responsible for organizing its own work.

Differences in public/private sector procedures (Step 1)

While all the tasks of Step 1 are common to all four
models of aquaculture projects, there are some differences
within each of the tasks between public and
private sector procedures. Notably, in Step 1a, the
construction of the logical framework is usually omitted
in private sector projects, and in Step 1c (review
assignment) there could be important differences in
criteria for a private sector project (Model A), compared
with those of public sector production projects
(Models B & C). For example, for the entrepreneur who
wishes to use his own land and water source for trout
farming, the project criteria will include references to
these site constraints. For a government wishing to
build a new catfish hatchery to enhance a large
reservoir fishery (Model B), the species and production
required may be established but not yet the exact
location of the hatchery.

With the right TOR the tasks of the leader and his team are manageable,
and the schedule and objectives are realistic. During this Step the
team plans effective implemention of work in the time allocated. Project
formulation is always undertaken within limited time and resources. The
work, therefore, has to be carefully oriented and scheduled so that the
team completes it on time, within the framework of the project criteria,
and within budget.

Step 2a - The project planning meeting

The purpose of the meeting is to prepare team members for their tasks.
When possible the meeting should be held in the presence of the project
sponsor, whether an individual entrepreneur, a company representative, or a
steering committee (in the case of most agencies). It provides an opportunity
for ensuring that the individual team members fully understand what
is expected of them, and accept and adopt a common approach to their
assignments (in terms of method and procedure). The “working documents”
for the meeting will be the TOR (Step 1d). At some planning meetings
important decision may be taken regarding, for example, scheduling, or the
types of project analysis which it is planned to adopt. For the team
leader, the meeting should facilitate the preparation of the workplan.

Minutes of the meeting are recorded by the team leader and circulated
to the team and the project sponsor.

The planning meeting is often not as rigorous as it should be. In
private sector projects it may be no more than a discussion with the
client, or company representatives; in the public sector it may be a roundtable
gathering with the project sponsor and government departmental staff
members.

Step 2b - Preparation of the workplan and allocation of
responsibilities

In most cases, aquaculture projects require only a simple workplan
which can be illustrated in the form of a bar chart of key tasks. In
relatively complex projects, where there are many inputs in the work to be
undertaken, the team leader may construct a “logic diagram”. This shows
the relationship in time of different tasks and the total time required.
It may then be helpful for him to use a “task allocation matrix” by which
various tasks can be cross-referenced with individual team members who will
thereafter have responsibility for them, whether working alone or with a
group. It is essential that the schedule, description of each task, output
required, responsibility for the output, and date of delivery, are all
accepted and adopted by the team members at this point.

Scheduling is now completed, and there is a precise list of responsibilities
for each team member. The team leader should now prepare internal
TOR for each team member based on the task allocated. This prevents misunderstandings
with regard to what is expected of each member of the team,
and when.

In larger and more complex project formulations it is usually necessary
to use “critical path analysis” (CPA), a management technique to
achieve a manageable workplan, usually through Programme Evaluation and
Review Techniques (PERT).

Project 1 - A Commercial Fish Hatchery Project in a Mediterranean
Country

This private sector project was initiated by an investor who was
already undertaking research and development in cage farming for sea bass
and sea bream in the country. After struggling for a few years from an
erratic supply of seed, the lack of good feed, and outbreaks of disease, he
considered that it should be more profitable to concentrate his business on
the production of seed to be sold throughout the Mediterranean region. He
had already purchased an area of land adjacent to his site to protect his
farming activities, and he believed this would be suitable for a hatchery
and nursery.

In discussing his idea with fish culture experts at a Conference and
Trade Show (Step 1a), he estimated that a hatchery and nursery producing
about 5 million four-month old juveniles each year would be profitable.
After visiting a number of consultancy companies exhibiting at the Trade
Show, he asked three companies to submit their qualifications and a proposal,
with unit costs for professional services, based on written preliminary
TOR and background information which he provided (Step 1b).

One month later he received all three proposals in which each company,
from available information, identified the key issues as they saw them
(Step 1c), together with a general description of the approach proposed
(Steps 2a, 2b, and 2c). He selected the firm which had the clearest TOR
(Step ld) and a contract was drafted for a three-month preliminary site
study, followed by separate price estimates for the complete prefeasibility
study and then the feasibility study (Step 1d). The consultants estimated
the prefeasibility study could be completed in nine months, if local
assistance was provided for a topographical survey, soil data, and water
quality analysis, and the feasibility study possibly six months later.

The investor met the consultants (Step 2a) to confirm the time
requirements and workplan (Step 2b). After three days of discussions a
lump sum contract was agreed for the pre-feasibility study. This included
a site study, but the investor agreed to supply separately the survey, and
soil and water quality analyses (Step 6b).

The phase of preparation for project formulation took under two
months.

Project 2 - A Brackishwater Shrimp Farming Project in a Southeast
Asian Country

The external assistance project, as provisionally described in the TOR
prepared for the formulation team (Step 1a), envisaged the construction
and/or rehabilitation of canals and of existing fish and shrimp ponds to
achieve higher yields of shrimp, and the construction of hatcheries, in
specified areas. This was to be accompanied by a strengthening of research
related to shrimp farming, the provision of extension services to fish-farmers,
and the provision of credit to farmers.

Formulation was to be done in two stages: (a) individual schemes would
be identified and ranked in order of priority for attention, and preliminary
proposals prepared for their implementation; (b) “sub-projects” would
be designed to a feasibility level and plans would be prepared for the
institutional infrastructure (hatcheries, extension, credit, and research)
covering all the sub-projects.

The available funding allowed for a team of five experts to have three
weeks in the field and three weeks report writing for Phase II. The team
consisted of a team leader/economist, and institutions, civil engineering,
and shrimp farming and marketing experts (Step 1b). The team leader and
two of the other experts had much recent experience of similar work in the
country which substituted for a more formal collection of information about
the country (Step 1c).

In this mission the redrafting of the TOR (Step 1d) was omitted.

The team, other than the credit expert who had been delayed, mobilized
in the capital where a meeting took place attended by representatives of
the Department of Fisheries (DOF) - (Step 2a). At this meeting the
objectives of the project were confirmed by DOF, the team's itinerary was
discussed and agreed, and the roles of the individual team members. The
team leader presented proposals of the lay-out of the interim report and
the list of annexes which, at that stage, appeared to be necessary.

The constraints of time available and the itinerary largely determined
the workplan and, other than identifying what was expected from each team
member, it was not considered necessary to go further into detail
(Step 2b).

In a meeting between EEC and a regional intergovernmental body from
Southeast Asia to discuss technical cooperation and development, the
general area of improving sanitary control in the production and marketing
of farmed shellfish throughout the region was acknowledged to be a
priority. It was agreed that a team of EEC consultants would tour the
region on the premise that Europe had technical knowledge on shellfish
farming and sanitary control which could be transferred to improve these
activities in the region. Increased production of shellfish in the region
could be sold in national and export markets, and new markets would be
opened for European equipment for the sanitary and depuration processes.

Six months later a team of three EEC experts (an economist, who was
the leader, a shellfish producer, and a commercial processor) toured the
region, discussed the idea with the five respective national Fisheries
Departments concerned, and prepared the provisional description of a large,
multicomponent, ten-year project (Step la), to be discussed further after a
study tour in Europe by a delegation from the region.

Details of the project were circulated to fisheries institutes in the
EEC and the region, and the study tour was budgeted and organized. Ten
months later a second meeting was held in Brussels. Project objectives, to
help small-scale fishermen re-orientate toward shellfish culture, were
redefined and accepted.

An EEC tender was prepared, based on preliminary TOR established at
the meeting. Administrative arrangements were finalized eight months later
to mobilize a six-member project formulation team for a one-year formulation
exercise, operating from headquarters in Singapore (Step lb).

In its first month the team met key officials in the region, collected
and reviewed the available documentation, and reviewed its assignment
(Step lc). It then revised its TOR concluding that 15 months, not 12, were
needed to carry out the work. This issue was raised in a project meeting
(Step 2a) held in the presence of a Steering Committee which consisted of
representatives of participating countries and experts. The Committee
agreed in principle to discuss the extra budget needed. Within a month of
the project planning meeting, a project logic diagram had been prepared by
the team. On the basis of this diagram, time requirements were finalized,
workplan validated, and responsibilities and individual work programmes of
the team members established (Step 2b).

The phase of preparation for project formulation had taken 16 months.

Discussion Topics

Points for discussion concerning the above illustrations might include
the following:

the factors which contributed to the different time schedules of
phase I for the three projects;

the extent to which the procedures for Phase I of each project followed
those described in the text and whether any departures were
justified;

the extent to which it appears that teams with appropriate multidisciplinary
skills were mobilized;

The purpose of this phase is to ‘think through the original project
idea’. The team has the opportunity throughout the four Steps of this
phase (3–6) to identify and review all the constraints and opportunities,
the people likely to be involved, the activities which are going to take
place, the technologies which may be used, and the benefits which may be
generated.

A distinction should be made at this stage between projects which are
specific with regard to location, species, etc. (Models A & B) and projects
which are general in nature (Models C & D). The former are characteristic
of almost all aquaculture projects in the private sector, and of a number
of production-oriented projects in the public sector. The latter are
characteristic of most public sector projects, and lack the specificities
of the projects referred to above.

Nonetheless, this phase is still important in the formulation of both
private and public projects. The difference in its application is one of
degree. Clearly, where a project idea is already closely defined in terms
of location, activity, people, technology, output, etc., the opportunities
to identify further options will be limited. Even so, the phase is important
as it provides the opportunity to establish that the original idea was
in fact sound. Where a project idea is not closely defined, the team should
use this phase to identify and analyse all ways in which project objectives
can be met.

Bearing in mind therefore this distinction between the two types of
projects, and remembering that even with the first type this phase presents
the opportunity to ensure that the project “fits” into the physical,
social, and economic environments, the phase has four main outputs. These
are:

An understanding of development deficiencies, potentials, and constraints
of the project area/sub-sector from an overall perspective
and from that of the main agents or interest groups active in the
area/sub-sector.

Working assumptions about future changes in the project area/sub-sector
expected to occur in the absence of any deliberate action,
such as the project idea under consideration.

Identification of broad options for project design relating, for
example, to definition of target groups, content of technological
packages, location of physical infrastructure, and institutional
participation.

The work in Phase II has four Steps: (Step 3) analysis and diagnosis
of the project situation from an overall perspective; (Step 4) analysis and
diagnosis of the project situation from the perspective of the those
concerned (the main agents); (Step 5) assessing the future without the
project; and (Step 6) outline specification of a possible project. the
activities of these Steps are illustrated in Figure 5, and described below.
The work in Steps 3 and 4 is usually undertaken concurrently, as will be
apparent from the following text.

The purpose of this Step is to understand and explain the nature of
the development problems in the area/sub-sector relative to aquaculture,
and the possible solutions.

Step 3a - Review of national, regional and sectoral background

It is important that expected outputs of a project are considered in
relation to existing and other proposed development plans and programmes
for the sector, and related sectors. This usually takes the form of a
general review of the broad development context in which the project is
being considered. It will include the economic structure and recent trends
of the aquaculture sector in the concerned area, important features of the
major aquacultural systems in use, markets and price structures, institutions,
organizations and management, income and welfare in aquaculture and
related sub-sectors, and the government's strategic priorities and policies
for aquacultural development.

Often the aquaculture sector may be small or even non-existent. If
this is the case, the team should assess the resource base, and review and
make analyses of directly comparable activities, such as fisheries (for
marketing and price structure information), and an appropriate part of the
agriculture sector (for example, small-scale farmers, and farmers engaged
in pig or poultry husbandry). This comparative study would include
financial and manpower allocations, farming systems and relevant social
characteristics. It might also be relevant for the team to summarize
briefly a situation in a similar country where the aquaculture sector has
attained a level of development as to be self-sustaining and, in particular,
the strategies and policies which led to this situation. If, on the
other hand, there is an active aquaculture sector in the country, or the
area concerned, then the team should already have a good basis of
information with which to work.

Step 3b - General evaluation of the project area/sub-sector

After reviewing the broader national and sectoral context of the
project idea, the formulation team then concentrates on the particular
geographical area or sub-sector within which the project will probably be
located. It is important here to select the most appropriate information
relevant to the proposed project, and to evaluate its significance. Points
of concern typically cover:

Physical features : The degree of importance to the project of
climate, geology, soils, topography, water resources available for
aquaculture, settlements, and existing land-use. Mapping is often the
most convenient way to present this information. Attention should be
given also to changes which regularly take place in
physical features. For example, regular changes in land use and the
extent of flooding and its consequences (such as, in mapping acid
sulphate soils, indicating distribution of leachates under flood
conditions).

Figure 5 Phase II. Reconnaissance and preliminary project design

Infrastructure: The extent of and availability to the project of
infrastructure, such as facilities and services, their general
condition or quality, and standards of maintenance. This will also
include general utilities, such as energy supplies, but if the
electricity service is unreliable or fuel is often in short supply
these factors should be noted as they will influence, for example, the
choice of pumps for water delivery. Similarly, although at first
glance there may be good transportation links to the area or site,
bridges may not withstand the weight of loaded trucks which will
deliver feed to the site regularly or take out products, or the roads
may be impassable at times in the rainy season.

Economic activity: Significant features of existing aquacultural
practices, technologies used, levels of productivity being achieved
and analyses of trends and long-term outlook, and marketing systems
both upstream and downstream of the main production units. When a new
technology is developed, many countries may exploit it with the result
that market prices fall. Thus, in a project to produce marine fish
(say) in the Mediterranean for EEC markets, the team would review the
potentials in other countries with similar coastal resources, analyse
the possible competition, and forecast the impact of the project on
market prices.

As at other stages in project formulation, the information sought by
the team at this point will be determined by the situation. For
example, where the project is concerned with providing conditions to
encourage production, this may only be possible if resources currently
used elsewhere in the agriculture sector (land, water, labour, and
capital) are diverted in some degree to aquaculture. In this case it
will be important to begin establishing costs of farm inputs and
farmgate prices of outputs to determine the likely financial
attractiveness of fish farming to producers. If an expansion of
existing aquacultural activities is planned, then economic systems
which provide inputs and the marketing system will both require review
and analysis to determine what changes may be needed.

Socio-economic features: These will include household characteristics,
land tenure and size of holdings, water use and rights,
population and migration, labour supply and employment, income levels
and social welfare, and social organization. For production projects
it will be necessary to determine broad social parameters related to
growing marketable products, such as the availability of labour,
possible involvement of women, cultural activities associated with
fish and water, etc. Also at this point it may be useful to make a
preliminary assessment of the rate of adoption of new technology which
might be appropriate.

As aquaculture is primarily dependent on land and water, these will be
mapped, competing uses will be logged and, at this point, the legal
and social factors of rights to usage - which are of permanent
importance in production projects - will be taken into account.

Institutions and development administration: Responsibilities,
organization (both at local and national levels), their functions and
effectiveness, and how this may affect the project should be clarified.
In most countries there are government and other institutions
which support different sectors, such as government departments,
university departments, training institutes, research centres, etc.
At this point institutions which are, or should be, supporting the
aquaculture sector should be reviewed so that their strengths and
weaknesses are identified. For example, where there is an agriculture
extension service in place, its effectiveness needs to be assessed
and, also, the feasibility of using it for aquaculture extension.

Policy and strategy: General aspects, which are already known from
the previous phase, should not be included here but points of particular
relevance to the project should be identified from discussions
and visits during the field work.

If the area has no background in aquaculture then it is important to
review these features in other parts of the agriculture sector. For
example, there may be generous assistance from government to farmers in the
form of grants and loans, and a range of support services. These should be
reviewed to determine whether they would, or should, be available to the
aquaculture sub-sector.

Step 3c - Identification of possible courses of action

In the preceding activities (Steps 3a and 3b) the team was concerned
with setting the project idea within the overall context of the aquaculture
sector. At this point this information is synthesized and analysed by the
team. Using their technical knowledge and experience, the team members
should be able to indicate the broad courses of action which could be
available.

In area-based projects (Models A and B), the team has to consider the
technological options available, together with their organizational implications
and environmental constraints.

Technological choices may relate to options for systems and practices
and to site selection. The team may consider, for example, a choice
between the production of trout in ponds or raceways, or the cultivation of
molluscs by raft or rope culture, or between farming shrimp in new or in
rehabilitated ponds, or for increasing water exchange pumping through a
central canal system. An organizational option in larger commercial
projects may be between a central management or separate cost centres and
managements for the hatchery, grow-out and marketing functions.

When considering technological systems, the team will also have to
take into account the differing organizational needs of various aquaculture
systems. For example, if a sub-sector has developed successfully on the
basis of earthern ponds, it should not be assumed without further qualification
that, because suitable water bodies are available, cage farming
could be introduced without difficulty. This system requires a well
developed commercial infrastructure which can provide services such as the
supply of seed and feed, provision of credit, equipment, research, training
and, frequently, the processing and marketing of the product. The team
would need to consider in this case whether such support services were
likely to be available, or could be made available.

Although the kinds of decision described above will very often have
been pre-empted in the project idea, the team should examine them critically
to confirm that the project idea is practical, to identify and
assess other options, and to take into account potential environmental
consequences of any selected option.

Key areas of environmental concern include the following:

nutrient and organic enrichment of the water and bottom sediments as
a consequence of cage farming which may result, for example, in the
destruction or contamination of bivalve resources;

partial or total ecosystem degradation which may result, for
example, from the destruction of coastal mangrove swamps to
construct shrimp ponds which may, in turn, reduce the availability
of wild shrimp seed for both aquaculture and for recruitment into an
offshore fishery;

farm structures which may completely alter the hydrology, flora and
fauna of nearby lakes, estuaries or coastal bays resulting, for
example, in the damage or destruction of feeding and breeding
habitats of many, perhaps also commercially important, food species;

chemicals misused in aquaculture may threaten the health of farmed
and wild populations and also of human consumers, emphasizing a need
at this point in project formulation to take such possible misuse
into account;

introduced exotic species and breeds will alter and may damage local
biodiversity and genetic resources.

For sector-based projects the team has to consider all possible
courses of action but without going into detail. For example, in a project
to increase inland fish production in the country (Model C), the team will
be concerned with alternative approaches to the problem, new processes and
technologies which might be introduced to achieve various quantified objectives,
and also to identify existing economic activities which might be
displaced. Within this approach it might consider increasing inland fish
production through (i) enchancement of inland water-bodies, (ii) small-scale
fish farming, and (iii) a mixture of both. Either of these activities
might affect others. With the enhancement programme, which requires
fisheries management, the number of fishermen might have to be controlled
although those in the fishery may have a better standard of living, while a
larger, managed, fishery might create more jobs indirectly than a smaller,
commercialized one. With the small-scale fish farming programme, which
requires inputs of land and water, it may take away these resources from
local rice growers, although fish farming may provide rice growers and
millers with a new outlet for their waste products as fish feed. For each
option, the team would consider the boundaries of the project (i.e., which
inland water-bodies and which watersheds) and make general quantified
estimates of how big the project should be, with estimates of the number of
fishermen and farmers, facilities required, and operational logistics.
These estimates then enable the team to calculate support services
required, such as number of hatcheries and nurseries, feed-production
plants, ice plants, and possibly market extensions. It may also include
manpower services, such as extension and training, and compare differing
credit plans. It would also consider various options for the organization
and management of the project.

In an institutional strengthening project (Model D) the team may be
concerned, for example, with training and research in pathology and would
have used Step 3a to carry out a general review of the aquaculture sector
and the general constraints on it. In Step 3b the team would have concentrated,
perhaps, on fish disease and adaptation of species and systems
to local conditions, and on institutions carrying out research, training
and extension. In step 3c the team would consider reasons for the existing
training and research centre not progressing as planned, and how relevant
constraints could be overcome, and how existing institutions responsible
for delivering extension services to fish farmers could be improved. The
output of Step 3c, in this case, would be a series of proposals to answer
these questions - which had arisen from the work done by the team in
Steps 3a and 3b.

The formulation team members should discuss these options among themselves
and, on an informal basis, with other concerned parties, and agree
on a provisional list of the more promising courses of action which are
apparent. This list will be reconsidered later in the light of information
obtained when individual agents in the project area/sub-sector and their
activities and needs are investigated in Step 4c.

Differences in Public/Private Sector Procedures (Step 3)

It will be noted that the work in Step 3 mostly concerns
public sector projects which are general in nature
(Model C), or deal with institution building (Model D).

Having surveyed the broad features of development in the project area
or sub-sector and arrived at a first assessment of project opportunities,
the formulation team should now focus attention on understanding how
economic and social activities in the area or sub-sector are organized.
Questions of concern will include, for example, what do people do? What do
they consume and produce? What aquaculture systems are in use? Who controls
water, land, credit, and other resources? Which people exercise control or
influence decisions, and how?

The approach of the team to these topics is analogous to systems
analysis, with people studied not in isolation but with their linkages and
interdependencies on others in the “system”.

In practice, many of the activities in step 4 will overlap the field
investigations conducted in Step 3.

Step 4a - Identification of the interest groups involved in the
project

The provisional specification is an overall view of people who are of
concern to the project, and of their activities. It is often helpful to
construct a model showing their economic and social relationships.
Normally this task will attempt to include all the major groups in the
community who are likely to have an interest in the project.

Three main types of interest groups can be described. These groups
can be called“agents”, namely:

“Instrument”agents: Individuals, households, and organizations which
are prime users of resources made available to the project, including
not only those directly involved, such as farmers, but also others,
such as suppliers and traders.

“Target”agents: Those whose material conditions and socio-economic
status are of prime concern to project management, and by which the
impact of the project will be mainly assessed.

“Regulator”agents: Those who control, regulate, intervene in, or
otherwise exert substantial influence over the activities and welfare
of instrument and target agents.

In dealing with the structure of the system, the formulation team thus
considers major interests which link these various agents together. This
can be illustrated by constructing flow or process diagrams.

The flow diagram of the economic and social relationships between
agents in a system is illustrated in Figure 6 which shows the relationships
found in a public sector shrimp-farming project (Model C).

Target agents, including farmers (who are also the producer
agents referred to above) and their households, fish consumers,
potential post-harvest employees (local community households),
general economic beneficiaries (national households).

Regulator agents, including the Department of Aquaculture in the
Ministry of Fisheries.

The identification of interest groups is more difficult if no aquaculture
sector exists as yet, or is small. In this case the project team
will first carry out the same sort of system analysis where the proposed
activity is to take place to determine how it can best be grafted on to the
present socio-economic system.

Step 4b - Detailed study of the agents and their needs

From the provisional specification of the system in the previous Step
the formulation team should now extend its field investigations. Field
work may generate information which will cause the team to revise the
system of economic and social relationships between agents, or to modify
some of the criteria used to define agents (Step 4a).

The main purpose of the field work in this step is to:

build up knowledge of behavioural patterns of the principal agents,

assess, where appropriate, their development needs.

Figure 6 Flow diagram of marine shrimp farming and marketing system

Thus, the first task facing the team is gathering, in a short space of
time, all the information required to enable it to achieve these two goals.
Statistical surveys, based on well-prepared questionnaires, are an ideal
method but take time, and may require special training of team members.
Alternatively, it may be more practical to use methods of “participatory
observation”, that is, relatively long and detailed discussions and interviews
with selected key informants, both individuals and groups, for as
long a period as possible. Such meetings should include people directly
concerned with the project and also those who are not concerned but have
special knowledge of the area and people in it.

However, caution is necessary. In a short field trip it is difficult
for a team which has no previous knowledge of an area to carry out this
exercise successfully. The team leader may have assembled earlier reports,
studies, books, etc., about the area (Step 1c) but, whenever possible, a
sociologist from the country concerned, familiar with the area and who
speaks local languages, should form part of the team. If one is not available
then every effort should be made to include someone who knows the area
and its people well and can guide the team. Finally, the team should not
attempt this “rapid rural appraisal technique” without first referring to
the extensive methodology on the subject.

In these discussions and interviews members of the team should avoid
pre-conceived ideas of their own. Informants, especially the poorest
members of the community, are invariably too polite or shy to contradict
opinions advanced by team members. The team should always be primarily
concerned with learning from all representative agents concerned, and offer
suggestions only when it has a good understanding of local practices,
methods, and techniques.

As an illustration of the above, shortage of credit has often been
suggested by general observers as one reason why the aquaculture sector has
not developed as rapidly as it might in developing countries. A project
team might (say) deduce this to be true after talking with existing fish
farmers who obtain credit from local money lenders. However, in discussions
with credit officers in the local agricultural development banks, the
team may learn that a Farmers Loan Programme (which includes fish farmers)
is available with fair interest rates but fish farmers do not take advantage
of it. Further investigation among farmers may reveal that they do
not understand the procedural requirements, or they do not have collateral
for credit (as they may not own their ponds and the value of the stock is
unacceptable). Similarly, it may be found that the bank's credit officers
do not understand the specific cash-flow needs of fish farmers (which
differ from agriculturalists as fish are cropped over many months).

Without talking to all three types of agents the team could easily be
misled into thinking that their preconceived view was correct, and there
was generally a shortage of credit for fish farming. Consequently, in the
next Step (Step 4c) the team would have addressed itself to this issue
rather than, for example, the familiarization of bank lending officers with
the credit requirements of fish farmers.

The team must make certain to include in the discussion all the
potential users of natural resources which will be affected by the project.
Some of these users may not be readily apparent. For example, in a project
for the conversion of fish ponds into shrimp ponds, the team should take
care to include those fishermen who harvest an offshore shrimp fishery
which is dependent on its annual recruitment from nurseries in the mangrove
swamplands, and the coastal communities whose only source of income is
catching natural resources of fish seed which are then sold to fish farmers
through brokers and middlemen. It is important for the team to discuss the
proposed project with all such groups to make sure that it will not compete
with their needs, or change their living in an undesirable way.

Again, as with Step 4a, this task is more difficult to carry out for a
project where there is not an existing aquaculture sub-sector. Clearly, in
such cases, agents do not have any experience from which to estimate their
needs if they became involved. Consequently the team has to undertake the
delicate task of educating agents, again taking care not to impose their
own views, and trying to establish the response in the event of the project
being established. For example, almost every production project requires
the commitment of government to create appropriate institutional infrastructure.
In this situation the team should spend considerable time with
senior and middle-level administrators (regulator agents), advising them
about typical needs, such as financial incentives (grants, loans and subsidies),
and support services (possibly an extension service, hatcheries,
research, education, technical training, and published information).
similarly the team should spend time talking to potential agents in the
private sector, such as those noted earlier.

In summary, throughout this first task it is important for the team
not merely to list individual agents' needs but to develop a critical
understanding of how the needs link together within a system (in the case
of an existing sub-sector), or how they would be linked (where there is not
an existing aquaculture sub-sector).

The second task is to locate points within the system where major
constraints are operating and the removal of which would have beneficial
results. In other words, as well as understanding what is the structure
and how it works, the team needs also to understand why, i.e., to develop a
behavioural model. The team must think in a precise, systematic, and
objective way about what causes things to happen in a particular project
area/sub-sector. This process is only a short step away from identifying
the constraints on the system.

In approaching this activity, the team should ensure that constraints
are defined as closely as possible. For example, typical limiting factors
in a shrimp farming system (with reference to Figure 6) may include:

resource deficiencies which limit yield (such as shortages of seed,
poor design of ponds, seasonal shortages of water, low quality of
water due to acid sulphate soils);

restrictions of a social nature (such as effects on the incomes of
others in the community, resistance to new ideas).

At the conclusion of this step the team should be in a position to
provide a comprehensive listing of all the system's problems, opportunities,
potentials, and constraints. This provides the basis for the
next step in the formulation process.

Step 4c - Identification of possible courses of action

In step 3c, which has the same title, the team identified possible
courses of action based primarily on a general evaluation of the project
area/sub-sector (Step 3b). In that task the team, subject to limitations of
time and resources, surveyed aspects such as physical features, economic
activity, infrastructure, socio-economic features, institutions, and
government policy. In Steps 4a and 4b, on the other hand, the team had to
be more concerned with reviewing the socio-economic system in which the
project will operate. They addressed such questions as: which people do
what? What relationships exist within the socio-economic system in the
project area/sub-sector? What are the limiting factors which prevent the
system from performing better?

This step can best be described as consisting of four activities.
They are:

revision of the possible interventions identified in step 3c in the
light of the work done in steps 4a and 4b;

final identification of the different groups of agents to be
involved;

identification of complimentary actions within the proposed project
which are required elsewhere in the socio-economic system as a
result of the primary intervention(s);

discussion of proposed courses of action.

First, in this Step the team synthesizes the work done in step 3- which
may be typified as being concerned with “things” - with the work done
so far in step 4, which has been concerned with “people”. This is done by
“fitting” the “people analysis”, of steps 4a and 4b, to the possible interventions
proposed in Step 3c. Thus it is possible that a course of action
identified in step 3c might have to be dropped, perhaps because it is now
apparent that it would be inimical to the existing social and economic
relationships between agents, or perhaps because the analysis in step 4c
has identified needs of agents and constraints upon them which give other
possible interventions a higher priority.

At this point the team should become aware that the project may not
bring about the changes intended, or may bring about other undesired
changes. For example, a project for producing fish in net-pens or floating
cages in large inland water-bodies may physically obstruct traditional
small-scale fishermen and deprive them of their living. Similarly, in the
above illustration of the shrimp project, the team may decide that converting
all existing fish ponds and fish farmers into shrimp ponds and
shrimp farmers would have serious repercussions on the economic and social
conditions of the traditional fish seed collectors, and there would be loss
of fish to local markets. In this situation it may conclude that it will
be desirable that only half the fish ponds available should be converted to
shrimp production. Similarly, it may have found that destroying all the
mangrove swamplands to make new fish ponds may destroy the offshore fishery
on which many fishermen depend, thus new ponds should be constructed just
behind the peripheral edge of the mangroves, so preserving natural nursery
grounds.

Second, after these adjustments have been made, the team should now be
in a position to consider who are to be selected as main “target”agents or
beneficiaries, in the case of the shrimp project, or who constitute the
active receivers or users of projects designed to improve technology, or
receive infrastructure, or a line of credit, etc., depending on what is to
be introduced by the project.

At this stage the best the team can do, on the basis of the limited
field work it has carried out, is to make a first estimate of the number of
target agents. The adoption rate will be influenced by such factors as the
attitudes of target agents to new technology, the availability of inputs,
the availability of credit, and an estimate of the number of agents
prepared to make the commitment of time required.

Third, clearly because intervention in one part of the socio-economic
system is likely to have consequences elsewhere within it, the team may be
required to identify additional courses of action. For example, intervention
in the form of private sector investment in shrimp production may
require new investments in ice plants and a cold storage facility for the
shrimp, destined for exports, to maintain quality control, and possibly a
small unit in the Department of Public Health to monitor it; or a project
to encourage pond farming may result in a need by farmers for some form of
cooperative or association which, initially, might receive government
support. These additional interventions elsewhere in the system will form
new components of projects.

The need for such institutional changes, as a consequence of the
introduction, say, of the production and marketing components of a project,
may be immediately apparent, through the need for extension services,
demonstration farms, study tours, etc. In contrast some required changes
may not be so apparent, and the team therefore should have a good understanding
of the responsibilities and functions of institutions, particularly
in government. For example, if a team is poorly informed, it may not
realise that where a project is concerned with the introduction of non-indigenous
species of fish into the country, or the movement of adults,
eggs, and juveniles, then the government should have a policy, complete
with regulations, towards introductions and transfers, and possibly a small
government veterinary unit, complete with quarantine station, to authorize
and monitor such activities.

Fourth, the members of the formulation team should discuss these ideas
among themselves and rank them in order of importance and in terms of their
impact on agents. They should then discuss their preliminary conclusions
with appropriate parties outside the team who are able to comment and give
advice.

Differences in Public/Private Sector Procedures (Step 4)

In private sector production projects (Model A), the
three tasks of Step 4 may be omitted altogether, or they
may be included when useful to the project sponsor. For
example, the project sponsor may be concerned that his
production project (which, say, requires low-cost
labour) fits into the local socio-economic system and
that no constraints will be imposed on the project.
Sometimes this Step will be fully developed by the team
or, on other occasions, the project sponsor will be
fully aware of the socio-economic structure in the
project area; for example, the international corporation
converting its sugarcane lands to catfish production.

In public sector projects (Models B, C, & D), however,
it will be clear that all three tasks in the Step are
usually very important. Where it may not be so
important is in projects which are analagous to private
sector projects, such as a state-owned farm.

The team should now have a comprehensive understanding of the current
development situation in the project area/sub-sector. It will have ideas
not only of what could be done to improve it, but also on what could happen
either independently of the project (whether it is implemented or not), or
in the absence of the project. These prospective changes which will take
place if there is no intervention with a project are now analysed and
evaluated so that the impact of the project can be assessed.

Step 5a - Projection of demographic change

The purpose of this activity is to consider how the population in the
project area, or in areas relevant to the main activities of the project,
is likely to grow and change over the life of the project, paying careful
attention to complicating factors, such as migration and employment.

Demographic changes are particularly important in the planning of
aquaculture projects because of the finite nature of land and water
resources, the two principal needs of aquaculture. For example, a significant
increase in population in the project area may result in increased
competition for relatively scarce freshwater supplies. On the other hand a
project may induce such changes. If a new area is developed, such as man-grove
swamplands described in the illustration, greater access to coastal
beaches may be offered which may encourage tourism and subsequently hotel
development.

Step 5b - Projection of demand, supply and price changes

A fundamental requirement at this stage is to assess the level of
demand for the outputs of the project. This assessment requires clear
distinction between the need for a commodity or service (that is, a
requirement determined by non-market criteria, such as minimum food energy
intake), and the demand for that commodity or service (that is, the
quantity or level which consumers are willing and able to acquire at the
particular price offered).

There is an established methodology for assessing demand. The main
determinants of demand are population growth and changes in per caput
income. If anticipated changes in demand have not been estimated in a
sector study, the formulation team will usually be able to obtain forecasts
of population growth - in larger countries on a regional basis - from the
central planners. The extent to which changes in income will affect the
demand for fish is often a complex issue. Very often, however, the application
of a broad estimate of income elasticity of demand - the amount by
which demand will change in response to a given change in income (which may
also be obtainable from the central planners), will provide a crude but
usually satisfactory measure of the likely magnitude of demand. In those
areas where there is a combination of low incomes and a high reliance on
fish in the diet, the income elasticity of demand can be quite high. For
example, for every 10% increase in family income, demand for fish may
increase by 5%, assuming no increase in the price of fish relative to other
goods.

Projections of supply will be dependent on the particular circumstances
of the project. In some cases it will be appropriate to take into
consideration the supply of fish from all sources and in others only from
aquaculture. Other factors may include types/species of fish,
fish products, and consumer attitudes.

Once demand and supply projections have been made, it is necessary to
bring them into balance. In many instances it will be found that there is
a widening gap between demand (fuelled in many of the poorer countries by
increasing population rather than incomes) and supply. Where this occurs,
the real price of fish (that is, its price relative to other goods) will
rise.

A comparison between projections of demand and supply in the absence
of the project results in price projections in a without-the-project situation.
These enable the formulation team to assess the future size of
markets for outputs of the project and to indicate the directions and
magnitudes of change in market prices with and without the project.

In projects which have the objective of producing product for export,
for example marine shrimp in the illustration given above, projections of
demand, supply, and price changes are important elements in determining the
financial feasibility of the project. However, it is very unlikely that
the incremental supply of shrimps by the project will influence world
supply and price levels. However, where a project is to supply fish to a
relatively small local market, it will be important to determine whether
that market could absorb all the project's output without a fall in price.

Step 5c - Projection of the impact of other projects

In this task it is important that the team is aware of other projects
(ongoing or planned) which may have a possible impact on the project which
is being formulated. This is particularly necessary for any projects which
compete for land and water resources. Also not to be overlooked are projects
which absorb human resources and skills in the counterpart institutions
which might be associated with the project. Experience shows that
many governments often overcommit themselves to development projects without
taking on additional staff, or releasing staff from other responsibilities.

Taking other projects into account usually presents little difficulty
for the team when they are already ongoing, but it is often more difficult
to learn of pipeline and proposed projects. Furthermore, it is often
uncertain whether such projects will ever be implemented fully, in part, or
after some delay. In such cases there may be no other option but to postulate
alternatives of the without-project situation, either with or without
one or more of those other ongoing or potential projects.

Step 5d - Definition of the “without project” situation

It is implicitly assumed that any project will result in additional
outputs from the project area/sub-sector concerned, that is, a greater
quantity and/or better quality of goods and services will be produced than
would otherwise be forthcoming. Thus a clear and precise assumption of
what is “otherwise forthcoming” is particularly important.

For this task the team must avoid the temptation to jump quickly to
the convenient but often erroneous conclusion that the situation will
remain much as it is in the absence of the project. Moreover, it should
consider that if the project under formulation is not implemented another
project might eventually be implemented in its place. The effect of the
other project is also part of the “without project” situation.

Consequently, it is important at this point to produce a practical
statement which represents the team's best forecast as to what may happen
in the project area/sub-sector if the project under formulation is not
implemented. This forecast serves as the base line for evaluating project
results. For example, if there are no foreign earnings from shrimp exports
in the next five years without the project, then all earnings from exports
as a result of the project (say, US$ 20 million) can be claimed as a project
benefit. However, without the project fish production in the area may
remain at its current level of 5,000 tonnes per annum. With the project
this would be halved. Similarly, these kind of calculations may be made
for farmers' incomes and employment figures, etc., and presented as
“results”.

Differences in Public/Private Sector Procedures (Step 5)

All four tasks within this Step are common to the four
aquaculture project Models described earlier. Clearly,
the tasks are likely to be more complex in multicomponent
public sector projects (Models C) concerning
many agents in different groups.

While in the previous Steps there has been a relatively close parallel
between the formulation procedure normally adopted for both public sector
and private sector projects, in Step 6 there is, in almost every case, a
wide divergence in approach.

In private sector project formulation quite definite answers will have
emerged to the following questions during the work in Phase I (Steps 1 and
2) and the early parts of Phase II (Steps 3 and 4) about the project:

Where should the project be located?

Who should participate in the project?

What should the project be doing?

How big should the project be?

When should the project start?

Which organization should manage the project?

In these projects the degree of detail in the outline specification is
considerable, and therefore the cost estimations which form part of this
Step are in similar detail. The end product, the interim project document,
is therefore the prefeasibility study report.

In public sector project formulation the team has not yet been able to
answer the questions listed above. It is still at the stage of sifting and
sorting the different courses of action which will achieve the project
objectives, and which were identified in Steps 3c and 4c.

In Step 6, therefore, the team will:

clarify all possible options;

identify which options appear to be superior to others;

present the selected options in the form of a specific project
proposal.

The end product, as with private sector projects, is the interim project
document which, reflecting the formulation process in public sector
projects, is frequently called the identification report, or the reconnais-sance report.

Step 6a - Clarification of project options

As noted above, this Step is undertaken in public sector projects, and
not usually by those in the private sector.

The six questions posed above have now to be given fairly definite
answers at this point. These should result, collectively, in the outline
specification of the project options. The sequence of the questions is not
significant, as all answers must be considered in parallel, but different
combinations of answers collectively form different possible project
outlines.

The options have to be considered by the team within the context of
the project objectives (Step 1), the criteria under which the project is
being formulated (Step 2), the project area (Step 3), and target agents
(Step 4). Factors which will be taken into account when answering each of
the questions may include the following:

Location of the project. The larger boundaries of production
related projects are usually defined geographically in the context
of activities to be carried out, availability of inputs, and
possibly in terms of institutional responsibilities. For example,
in a project to develop culture-based fisheries, the team will
compare locations having regard to such factors as the sizes of
different water-bodies and potentials to support fisheries,
existing and potential future fishing effort, siting and operation
of hatcheries, prospects for introducing effective management
practices, availability of fishery inputs (boats, nets, engines,
fuel), and environmental impact. Or, in a project to enhance
national capabilities in national research and training, the team
will compare locations for such factors as existing institutional
strength, proximity to the sub-sector, policy issues (at national,
state, and local levels) and physical facilities (research
laboratories, information resources, accessibility, accommodation).

Participants in the project. There may be options concerning who
should participate in the project. For example, in a project to
increase mollusc production, the team may compare options for new
producers in new areas, assisting existing producers to expand in
established areas, or a combination of both. Alternatively, the
team may consider that increased production could be achieved by
reducing waste in the transportation and marketing networks, and
“downstream” agents must be involved.

Activities of the project. For production-oriented projects, the
options may be few, as the production systems and practices will be
determined, to a very large extent, by external factors. While the
options may be limited in number, they do nonetheless exist. For
example, to increase mollusc production, the first consideration
may relate to the choice of species, namely oysters or mussels, or
both. With regard to technological options to increase yield, the
options may be to produce them on floating or fixed structures in
the sea, or to improve management of any existing beds, or both.
Similarly, attention may be given to the post-harvest stages, such
as the introduction of depuration and processing to prolong
shelf-life. In some production projects, say to increase fish
production in certain areas of developing country, there may be no
alternatives to simple pond culture other than increasing levels of
intensity. Other projects have more easily identified options.
For example, in a project to introduce new hatchery technology,
alternatives may be to train hatchery managers in national training
courses, or on-the-job training courses; in a project to advance
education options may relate to introducing graduate courses at
national universities, or taking advantage of graduate programmes
overseas.

The size of the project. The maximum size of the project may be
constrained by external factors, such as a national plan for
development, or internal factors, such as total allowable cost or
designated area. For production-oriented projects, options will be
quantified production goals. Factors which will influence these
options may include constraints referred to above (location of the
project and participants), and perceived risk. Thus, options may
be developed relating to the size of the project and, furthermore,
there may be options relating to its phasing. For example, where
there is perceived to be a relatively high level of risk the formulation
team may array as options (a) a relatively large project
without a pilot stage, (b) a pilot stage within a larger project,
or (c) a pilot project only. For other types of projects, such as
institutional strengthening, options may be severely limited by
predetermined numbers of graduates required, or by institutional
resources available. Options may be increased, however, when, in
the absence of any sector development plan, the formulation team
proposes different scenarios for institutional building based on a
range of estimates of production by an aquaculture industry.

Coordination and scheduling of project activities. Once again,
under almost all circumstances, the options for production-oriented
projects are limited by the reproductive life-cycles of the species
concerned. Thus it is easy for a project schedule to slip a year
if an activity which anticipates a breeding season, such as hatchery
construction, is delayed. In a project to enhance production
through culture-based fisheries, where it is apparent at this stage
that a substantial amount of time may be lost due to unavoidable
delays in construction of hatcheries and other facilities, an
option may be to consider purchase of juveniles elsewhere and
implementation of improved management practices prior to hatchery
operation. Available options are also likely to be limited in
other projects, such as institution building. In research and
training projects, for example, principal options may concern
specific timing of activities under the project, which may have
cost implications.

Organization of the project. In small aquaculture projects there
are few if any options for organization and the project must fit
within the existing government structure. In large projects
identification of the right management institution is often a
sensitive question, as the most appropriate may not have participated
in project conceptualization at all. This is particularly
true of inland aquaculture projects which may have been developed
through (say) the Ministry or Department of Fisheries but, because
of their potential involvement with water resources, farming
cooperatives, and interior extension services, are best placed
within the Ministry of Agriculture. Alternatively, if the agriculture
sector is already large and dominant in the country, it may be
preferable to use an existing parastatal body, such as a regional
development authority, to manage the aquaculture project to give it
some independence and a specific identity.

Step 6b - Quantification of options

In private sector projects the team will have omitted Step 6a and
proceeded directly to this task. Here the team will quantify quiteaccurately the main technical and biological criteria used to define the
physical design of the commercial facility. By comparison, in public
sector projects the team having only established a number of possible
options, will now quantify them to a degree by that a judgement can be made
about them later. The purpose of this task for these types of projects is
therefore to make preliminary estimates of the costs and benefits of each
one as a prerequisite to making that judgement.

Private sector projects

In private sector projects quantification of the technical and
biological criteria is called bioprogramming. It involves assembly of all
the design features, and quantification of all components which describe
functions and operations. Bioprogramming can be simple or detailed,
depending on the nature or purpose of the project. Its elements are as
follows:

Biological design criteria. These identify the basic environmental
requirements to be fulfilled in the design of the facility
for the species to be cultured, and the optimum conditions.
Careful research of facts is necessary, usually with reference to
research studies, reports of other facilities, and trends in
culture techniques. The key biological criteria include species
description, behavioural characteristics, culture techniques,
environmental requirements (in terms of density, water exchange,
water quality), nutritional requirements, growth rates, mortality
rates, diseases, etc.

Facility characterization. This activity integrates the biological
design criteria and production goals with the proposed site
of the project and transposes them into a functional physical and
operational plan. The characterization of the facility is based
on production schedules (taking into account all stages of
development as well as at harvest) and the number of units
required. Several iterations may be necessary until a realistic
project is developed in terms of biological, engineering, and
financial constraints. For example, the site may be limited in
size, and therefore with standard engineering design its production
capacity is limited and possibly not profitable. If a
higher technical level of engineering is employed, at additional
cost and risk, increased production is possible through intensification,
and increased profit. Alternatively, the site may not
be limited in size, in which case it is necessary to develop
sufficient of the site to meet production and profits for the
least cost in construction and future operation. Thus the task
is to characterize facilities which optimize all these factors.

Programming infrastructure. This element deals with specifications
of the infrastructure, in particular the water system for
the site and all production units, and all production and support
spaces. For water requirements, a water process diagram is
developed which indicates the volume of each type of water
required by each production unit and support space, and any
seasonal variations. Production spaces will include the number,
size, and other features of all grow-out spaces, and the
hatchery, nursery, brood ponds, spawn tanks, quarantine tanks,
etc. Support spaces will include dimensions and services
required of all features, such as research laboratories, offices,
storage rooms, feed stores, workshops, freezer equipment, boat
ramps, etc.

Site studies. This activity identifies the characteristics of
the site. Primary site criteria include land availability, land
ownership, and cost, as well as its topography, water availability,
water quality and temperatures, water rights, and other
competitors for the water. The other primary criteria are the
qualities of the soil (chemistry, permeability, and compaction
properties). Other features of the site are also important, such
as proximity to supporting infrastructure (towns, utilities,
markets), and access (roads and bridges).

The site can also be described by its local political and socio-economic
factors (Step 4b), the climate and its potential for
major disturbances (earthquakes, floods), and adjacent land uses
(Step 3b). It is also necessary to be aware of any leases or
permits required for developing the site and use of water, and
other environmental constraints which might be impacted by the
project. Finally, it is useful to know if the site has natural
predators of the species to be cultured, or if there are other
pathogenic organisms in numbers to add further risk to the
project.

Schematic design. This element translates the criteria into a
workable design. It identifies, assesses, and recommends the
design which meets production goals optimizing the features of
the site. The schematic design assembles information which:

describes the facility design concept selected;

a site lay-out, showing location of all major components on the
site and reflects topography and operational relationships;

floor plans for all major support buildings;

a schematic diagram of the hydraulics of all water requirements
for each component complete with elevations;

a topographic survey.

Sketches are prepared to illustrate the concepts. This information
is then used for estimating preliminary construction and
operating costs, and developing a project construction schedule.

Two further elements are then included:

Financial analysis. This element provides a preliminary financial
analysis of the proposed project, based on the objectives
and the cost/benefit requirements of the project sponsor.
Reference here is also made to the original market assessment and
marketing strategy for the products. Invariably the analysis is
made in the form of financial spread-sheets, complete with calculations
for internal rate of return.

Environmental analysis. The last element considers the relationship
of the project to the environment, and considers both
positive and negative impacts which may follow. In some cases
the team may be required to research national laws and local
regulations regarding the environment, to make sure that the
project does not conflict.

This Step concludes with the production of a prefeasibility study
report, which is a compilation of the elements (e), (f), and (g) above.
This report is complete in as much as the project sponsor can agree to
financing, or can use it to secure financing. In addition, the document is
an accurate record of the project, which may become a guide for all subsequent
stages of construction and operation.

It should be noted, however, that during schematic design (e) above,
the team may conclude that there is more than one way to lay out the site.
There may be simple options for design but with alternative costs and
risks. For example, a pumphouse could be located on the coast for maximum
efficiency but this would require costly coastal shoreline construction to
resist wave forces and lengthy transmission lines for electricity and large
pipelines for water. Alternatively the pumphouse could be located near
other facilities inland where it would not be as efficient but there would
be no electrical transmission lines and tidal water would be brought in
cheaply through a simple canal. It may also be that large ponds would be
cheaper to construct and operate but when harvested the volume of fresh
product from each could exceed the projected market demand at any one time.
Alternatively, smaller ponds could be constructed at greater costs, but
future management and harvesting might be better geared to local market
patterns.

When such options arise, as they invariably do, the project formulation
team will then follow, but to a lesser degree, the process of dealing
with options which, as noted in Step 6a, are typical of public sector
projects.

Public sector projects

The quantification of options in public sector projects which have
components of production deals in effect with these same elements of
bioprogramming and, where possible, uses the same criteria. It is unlikely
to be as detailed, however, as the information required can be restricted
to that permitting the analysis of each option in Step 6c before one is
chosen for further development.

This can be demonstrated by reference to the illustration, used in
Steps 3–5 to (Figure 6), which deals with a project to produce marine
shrimp to earn foreign exchange by constructing new ponds in coastal
mangrove swamplands and/or converting existing fish ponds. In Steps 3c and
4c the team had identified possible courses of action, namely options for
constructing new ponds in the mangrove swamplands, converting existing fish
ponds into shrimp ponds by making them deeper and increasing water flow, or
a mixture of both. The team should undertake bioprogramming for each
option as if it were an independent private-sector project. In other
words, it will assemble:

biological design criteria,

facility characterization,

siting, and

schematic design.

As with the private sector projects, the team should also estimate
capital costs and operating costs but a lower level of accuracy is acceptable.
Information on yields and prices will enable estimates to be made of
revenues and foreign exchange earnings for each option. Profits can then
be calculated on a year-by-year basis, and a preliminary financial internal
rate of return (FIRR) be estimated.

Preliminary estimates can then be made of net economic and social
benefits. In calculating the economic internal rate of return (EIRR) there
might be taken into account, for example, the number of new jobs created
and incremental increases in incomes generated by the project. A preliminary
estimate might also be made of economic costs, for example, shadow
price of labour and opportunity cost of foregone fish production. Judgements
can also be made about other benefits and costs, such as diversification
of economic activity, creation of self-reliance and management
skills, and even transfer of skills and technology. Similarly, qualitative
judgements may be possible with regard to other costs and benefits, such as
possible reduction of the shrimp fishery, or loss of biological diversity
through destruction of mangroves.

The analysis of the three options, in the light of all this information,
is then carried out in Step 6c.

Step 6c - Analysis of alternatives and selection

Whether the project is in the private or the public sector, each
quantification and qualification derived above constitutes, in outline, a
different project. In principle each option may be feasible, but at this
point the team must decide which is the best.

The basic reasoning behind each design option is reviewed once more to
determine if it conforms with the objectives of the project. Once this is
done each design is submitted to performance tests concerned with four
particular criteria, namely:

Financial criteria. Money is the unit of account. For example,
what will be the project cost? How will it be financed? Are the
financial incentives likely to induce the responses required?

Economic criteria. Financial aspects concerning individual agents
are integrated in resource utilization as a whole. For example,
would the resources invested in the project be better utilized there
than elsewhere?

Social criteria. These account for the distribution of benefits
among various groups of society. Would the project contribute to
achievement of the country's social policy objectives?

Environmental criteria. The need to exploit natural resources must
be balanced against its effects and impact in the future.

In public sector projects, providing answers to the many questions
appropriate within the four criteria is one of the most difficult tasks of
the team. There is no obvious answer to weigh the performance of one
design option against another. The team therefore has to use its judgement.
One useful tool to assist the process is the decision matrix. This
is a two-way table by which the different project designs considered are
entered against specific objectives and design criteria, forming cells
where the performance of the corresponding combination is noted.

The way in which the matrix is interpreted depends on the type of
project and its objectives. If, for example, a country's sectoral
objectives include the promotion of living standards and employment in
rural areas as a means of slowing urban drift, the number of householders
benefiting from the project is the important criterion; in a project to
earn foreign exchange, financial and economic criteria are more important.

All projects carry a degree of risk, some more than others. The team
has also to make a judgement on the level of risk for each option proposed.

Table 2 shows a decision matrix for the shrimp-farming project developing
new ponds in coastal mangroves, and converting existing fish ponds
into shrimp ponds by making them deeper and increasing water flow. The
matrix lists the criteria most appropriate to the project. This table
shows the way that it might have been constructed by project formulation
team.

Table 2
Project decision matrix (coastal shrimp farming project)

Option A: Construction of new shrimp ponds.

Option B: Conversion of existing fish ponds into shrimp ponds.

Option C: Combination of new ponds and existing ponds for shrimp production.

As the project was finally formulated, there were three options.
These are summarized below.

Option A: Construction of 2 500 ha of new shrimp ponds in reclaimed
coastal mangrove swamplands with an annual yield of 10 000 t in two
cycles, together with a hatchery. The major part (80%) of the capital
required for construction for the ponds originates from external
assistance with the balance povided by the national government; the
balance of the capital requirements for financing construction of a
hatchery and technical assistance is also provided by external
assistance. The financial support from the donor is provided through
a line of credit to the Agriculture Development Bank for on-lending to
250 individual farmers, and to the parastatal corporation which will
build and operate the hatchery. New farmers will be recruited from
the households of traditional fish farmers in the area.

Option B: Conversion of 4 000 ha of existing fish ponds to shrimp
ponds with an annual yield of 10 000 t in two cycles, together with a
hatchery. The capital arrangements are as before but, as the fish
ponds are widely dispersed (among 600 farms), there is an additional
credit component for three ice plants.

Option C: A mixture of the above, with 1 000 ha of new ponds
(100 farmers from existing fish farming households) and 2 000 ha
of existing fish ponds (300 farmers) with combined production of
10 000 t. Capital arrangements are as before but only one new ice
plant is required.

An interpretation of the project decision matrix (Table 2)

Economic: All options have high and similar EIRRs, with the highest
in Option B because of the higher self-employment benefits generated by the
project. Option a generates economic benefits through a higher employment
in construction. All require some domestic capital, which is estimated to
to generate US$ 1 for every 4-5 units of local currency. Note, however,
that these EIRRs are subject to further qualification in the Environmental
Impact Analysis (see below).

Financial: Option B has a rather higher FIRR than either of the other
two projects because of the lower construction costs.

Social: Option B has higher benefits than the other two options
because of the higher level of participation by self-employed householders
(600) in the project. Employment in the ice plants under Options B and C
would be seasonal, and employment in construction in Option A will occur
only once. These may be disadvantages in attracting labour, and some
problems may arise if labour is imported. Overall, Option B provides the
greater flow of benefits, as well as upgrading self-reliance in the local
community by introducing new skills into it. Option A provides the lowest
social benefits. Option B, and to a lesser extent Option C, results in the
loss of fish to the local markets. The source of new farmers for Option A
(250) and Option B (100) is assumed to be from among traditional fishpond
households. The investigations carried out by the team (Step 4b) have
indicated that (a) here should be little difficulty in recruiting young
farmers with the necessary aptitudes and skills, and (b) their recruitment
should have no adverse affect on the existing traditional fish farming
activity.

Environmental: Option A has the greatest environmental impact as it
requires the greatest destruction of coastal mangroves. In addition to
this loss of a coastal ecosystem lands, the loss of the nursery grounds for
young shrimp may affect both the artisanal and industrial shrimp fisheries.
This would have a significant impact on the EIRR of Option A, and to a lesser
extent in Option C. Options A and C might enhance local productivity
by the discharge of nutrient-laden water from the new farm complexes, but
Option A, because of the size and associated greater use of water, may
result in scouring and coastal erosion.

Risk: There is a risk for all three Options associated with the
“take-up rate” of the new technology. In Option B, however, it would be
expected that this risk is lower as the existing fish farmers can use the
technology in some of their traditional activities. Both Options A and C
might be considered to have high risk associated with the construction of
large new areas of shrimp ponds because it adds significantly to the
complexity of the project.

Conclusion: All three Options have similar EIRRs and FIRRs, and the
government recovery of costs is estimated to be similar. Militating
against the selections of Options A and C would be the high level of risk
associated with them, compared with Option B; a significantly higher
environmental impact, and possibly greater adverse social repercussions
which might accompany the employment of a large labour force for construction.
In favour of Option B is that it has the largest number of
beneficiaries (implying the largest distribution of benefits). In favour
of Options A and C would be the generation of new self-employment, and
larger benefits in the form of increased self-reliance in economic management,
and increase in the transfer of skills and technology. Option A
would have no consequent loss of fish to local markets, Option C would
incur some loss, and in Option B the loss would be significant.

After balancing the arguments in favour and against each of the
Options, the team would probably select Option B on technical grounds, as
the ponds are already in place and operated by traditional fish pond
farmers. It has a low level of risk so far as cost over-runs and low
“take-up rate” are concerned; neutral environmental impact, and avoids, to
a very large extent, possible adverse social repercussions during construction.

However, the government and the external assistance donor, when
reviewing the options, might prefer Option C on the grounds that the loss
of fish to local markets is reduced, while only slightly fewer households
(450 compared with 600) are beneficially affected.

Step 6d - Preparation of interim project document

The outline specification of the formulation team's preferred project
design (or designs) is now presented in proper form to the project sponsor.

Referring back to the beginning of Step 6, it will be recalled that
the end product, the interim project document, was called the “prefeasibility
study report” in the private sector, and the “identification report”
or “reconnaissance report” for projects in the public sector. In the discussion
of this Step, attention has been directed to the differences in
approach and level of work undertaken between the two sectors. Clearly,
interim reports reflect these differences in their contents.

A prefeasibility report would describe a properly evaluated and
functional facility with the projections of costs, and construction and
operations schedule, made in sufficient detail. In relatively small or
simple projects, where the overall cost is, say, up to US$ 500 000 (in 1990
prices), a decision might be made by the project sponsor to proceed
immediately to implementation. In larger and more complex projects there
would almost always be a requirement on the part of the project sponsor for
the formulation process to proceed to the Project Design Stage (Phase III).

The identification report or reconnaissance report usually takes the
form of a clear description of the project's nature, structure, dimensions,
and impact with all the choices concerning project variables being
explained and, if necessary, justified. The lay-out of the report might be
described in terms of the reverse of the procedure which has been followed
by the team through Steps 3–6, described above, that is the report would
highlight for the reader why the project is the best, and for what reasons.

At times, as noted above in Step 6c, there may be more than one
possible project design. The team may also conclude that either more
detailed design work is required (Phase III) or, simply, no project
properly satisfies the TOR. Provided that the team has done its work
correctly and professionally no failure is associated with such a
conclusion.

Each report ends, whatever its evaluation, with clear recommendations
whether to proceed, or not. If the former, specifications and TOR of the
next phase are given.

Differences in Public/Private Sector Procedures (Step 6)

The four tasks of this Step are quite different for
private sector projects and public sector projects. The
private sector project (Model A) is more concerned with
accurate quantification (Step 6b) and financial analysis
(Step 6c). In public sector projects (Models B,C, & D)
the emphasis is usually on the evaluation of all the
alternatives identified, and makes use of all Steps.
While this includes quantification and financial
analysis where possible, it is not usually carried out
to the same degree in private sector project formulation.